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Carbon tax will hurt economy

The Greenhouse Policy Coalition (GPC), representing New Zealand’s energy intensive sector, says while the Government has to introduce policies aimed at reducing greenhouse gas emissions, a carbon tax is not the best policy option because it has the potential to hurt the New Zealand economy and will not necessarily result in significant emission reductions.

Executive Director of the Greenhouse Policy Coalition, Catherine Beard, says at $15 t/CO2 the tax will collect around $3-500 million per annum, impact on all New Zealanders, and do little to reduce emissions.

Catherine Beard says that with 50% of New Zealand greenhouse gas emissions coming from agriculture and 20% coming from transport, a carbon tax will not have much impact on reducing our increasing greenhouse gas emissions.

“Unlike other industrialized developed nations, most of our emissions do not come from our electricity generation or our industry. The electricity sector is already dominated by hydro and is 70% renewables when you add in wind, biofuels and geothermal. Thermal electricity generation accounts for only 7% of greenhouse gas emissions and industrial and manufacturing accounts for only 14% of greenhouse gas emissions.”

Catherine Beard says the Greenhouse Policy Coalition think smarter policies to reduce emissions would include focusing on solutions to agricultural emissions, incentivising increased forest planting, lowering the age of the motor vehicle fleet and continuing with voluntary agreements with industry to reduce emissions, which have produced good results since the 1990’s.

Catherine Beard says while the Government has introduced Negotiated Greenhouse Agreements (NGA) to shield energy intensive companies from the tax in order to stop them leaving New Zealand and taking their business to a non-Kyoto country like Australia or the USA or China (which does not have any Kyoto targets to reduce emissions) only time will tell how effective the policy will be.

“At this stage the major concern of the energy intensive companies is that the Government is unwilling to provide NGA relief from the carbon tax beyond 2012, which is the end of the first commitment period of the Kyoto Protocol. From 2007, when the tax takes effect, this is only 5 years of certainty. For large multinational businesses in a capital intensive sector, with long plant life and long investment cycles, this is creating a lot of uncertainty and could make New Zealand unattractive for future investment.”

Catherine Beard says while the Government might be talking down the impacts of the carbon tax at $15 a tonne of CO2, if the tax is pegged to the international price of carbon we should be concerned.

“The early trading of carbon in the European Union Emissions Trading Scheme (EUETS) has produced very high prices that are already over NZ$25 tonne CO2 and the market is still relatively new.”

Catherine Beard says the question needs to be asked how New Zealand will meet future Kyoto Protocol commitments beyond 2012.

“There could be some very challenging times ahead for the New Zealand economy, given our economic growth has been very closely aligned with an increasing demand for energy, which will only get more carbon intensive in New Zealand – not less. This coupled with a loss of carbon sinks through deforestation and land use change means it will be very difficult to meet future targets without sacrificing economic growth”.